Friday, 23 September 2016

Lashed to the wheel

Greg Mulholland was one of the few Liberal Democrat MPs to survive the carnage of the 2015 General Election. Since his original election in 2005, he has sought to present himself as “The Pub Champion”, but to a large extent this seems to have involved championing tenants against pubcos, and demanding tighter planning controls, rather than standing up against the more general factors that have affected the overall demand for pubs. Specifically, I’m not aware he has any particular track record on opposing the smoking ban.

He’s recently given an in-depth interview to the Morning Advertiser in which he has raised the possibility of “super-ACVs” under which pub owners would be compelled to sell pubs to community groups or alternative owners at their valuation as a pub rather than the potential redevelopment value.

Now, I recognise that pubs can have a value as community resources that transcends narrow financial considerations, and that ACV listings, if properly applied, can give them a valuable stay of execution if they are threatened. I’d also support pubs being given protection from being turned into shops or offices without needing planning permission, subject to a reasonable minimum time limit of trading as pub.

But it has to be accepted that society changes and moves on over time, and that most of the current issues around planning and redevelopment are symptoms of the general decline in the demand for pubs, not its cause. It is simply unrealistic to believe that pubs can be preserved in perpetuity if the underlying demand is no longer there. In a recent blogpost, RedNev asked the question as to who says a pub is unviable, but surely at the end of the day the only test is whether someone can succeed in running it as a profitable business.

Any economist worth his or her salt will confirm the general progress of the economy depends on shifting the allocation of assets to more productive uses. If a pub is only worth £300k as a going concern, but £2 million if the site is redeveloped as housing, then arguably society as a whole benefits if it is used more remuneratively. A pub isn’t just a building, of course, it’s also a parcel of land, and very often, on larger sites it’s that where the additional value is to be found. Mulholland’s idea is likely to lead to already struggling pubs being passed on between a succession of ever more unrealistically starry-eyed owners before someone eventually gives up the ghost.

It also raises the question of who, at the end of the day, stands to benefit from redevelopment. If a pubco is forced to sell a pub at current valuation to another operator, or a community group, but a few years down the line it proves unviable, then they will rightly feel aggrieved if they lose out on the profit. And I wonder whether, in a few years’ time, we’re going to see the trustees of some of the current crop of community buy-out pubs that are being championed by CAMRA seeking to sell them for housing or redevelopment when they realise that, with the best will in the world, they simply can’t be run profitably.

Sadly, by seeking to ossify the current structure of the pub trade, Greg Mulholland is less the champion of pubs than the enemy of their long-term prospects.

5 comments:

From the interview:“It was pointed out to me at the last election I was the only person with more pubs in his constituency than in the previous election,” Mulholland proudly explains.

From a previous MA article:Our local MP Greg Mulholland was unwilling to help as supporting the opening of a new pub was in conflict with his public efforts to save existing pubs.Lee Pullan, licensee of the Old Cock, Otley

Also from that earlier article:Similarly, shops converted into pubs falling under the remit of a blanket ACV may not be able to be changed back to shops if they fail as pubs.

"The general progress of the economy depends on shifting the allocation of assets to more productive uses"

That bit is entirely true and part of any economics lesson 1. However if you come back for lesson 2, you learn that the most efficient, productive and socially beneficial outcomes are not always reached through a free market system. In fact, there is evidence to suggest that completely free markets are extremely inefficient and sub-optimal distributors of resources.

The first year of an economics education involves learning about how great the free market is, then the next three years are spent understanding the vast and myriad ways in which the free market concept doesn't really stack up in reality. It amazes me how many commenters on the internet appear to have only taken the first year of an economics degree. The drop out rate must be chronic.

Pubs provide valuable positive social externalities, the most economically efficient outcome would be if they were given a lump sum by the government every year equal to the value of the positive externalities they provide.

Any economist worth his or her salt will confirm the general progress of the economy depends on shifting the allocation of assets to more productive uses. If a pub is only worth £300k as a going concern, but £2 million if the site is redeveloped as housing, then arguably society as a whole benefits if it is used more remuneratively.

I am not an economist but disagree with that statement,why would a closed pub that i could have had a drink in like many other people be better for society if turned into housing, which will only benefit the people living there.Why not build on brownfield sites or even do up the many houses i see boarded up rather than close a pub down.

It's always sad when pubs close, but I don't think even the most ardent pub-lover can argue that having a massive building catering to a hundred customers a day is making the best use of a half-acre site.

It's worth repeating a comment I made on RedNev's blog:

But I think this issue relates only to a relatively small subset of pubs - ones (usually in suburban areas) - where the owners think there's a reasonable prospect of residential redevelopment. The pubco will think "well, we're not really making much money out of this, and we'd struggle to sell it as a pub for more than £200k, but if we got planning permission for housing, we could get a million for it."

The council can refuse planning permission, but if it turns into a prolonged staring contest the pubco is likely to win. Local opinion will tend to prefer some much-needed new flats over a tatty and underused, or maybe even derelict, pub.

And if a sale as a pub to a new owner was forced through, what's to say they won't be asking for the same thing in a couple of years, in which case the pubco will rightly feel aggrieved that they have been deprived of the redevelopment profit?

There are some cases where that is undoubtedly true. And some cases, particularly in high property value areas, where perfectly viable money making pub businesses are deliberately crushed and extinguished to realise the immediate capital value of a site. As is the case with most things, there is therefore no 'one-size-fits-all' solution.

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